State and Local Tax News
July 12, 2012
All States Tax News

California Governor Signs Bill That Repeals Multistate Tax Compact Provisions, Expands Collection Authority
Omnibus Tax Bill Enacted; IRC Conformity Date Updated in North Carolina
U.S. Supreme Court Asked Whether Teachers Created Nexus for Mail-Order Bookseller
Sales and Use Tax: Utah Accepted as Full Member of SST Agreement

State and Local Tax News

Alabama
Colorado
Connecticut
Florida
Hawaii
Illinois
Indiana
Kansas
Maine
Massachusetts
Michigan
Minnesota
Missouri
Nebraska
New Jersey
New York
North Carolina
Ohio
Oregon
Pennsylvania
Rhode Island
South Carolina
South Dakota
Texas
Vermont
Virginia
Washington
West Virginia
Wisconsin


California Governor Signs Bill That Repeals Multistate Tax Compact Provisions, Expands Collection Authority

California Gov. Jerry Brown has signed legislation that repeals the state's Multistate Tax Compact provisions for California corporation franchise and income tax purposes and clarifies existing law regarding elections. In addition, the bill expands the definition of a "state tax liability" for purposes of issuing withholding orders for taxes and expands the state's Financial Institution Record Match (FIRM) program to collect delinquent amounts payable to the State Board of Equalization (BOE) and the Employment Development Department (EDD).

Repeal of Multistate Tax Compact Provisions

The repeal of the state's Multistate Tax Compact provisions clarifies that the standard three-factor apportionment formula is not an option for California purposes, except for businesses that derive more than 50% of their gross business receipts from certain qualifying business activities. Despite California's adoption of a four-factor (property, payroll, and double sales) apportionment formula (and subsequent single-sales factor formula election provision), pending litigation (Gillette Co. v. Franchise Tax Board) questioned whether the compact's three-factor apportionment formula was still an option. The repeal of the Multistate Tax Compact provisions prevents a substantial state revenue loss in the event of an adverse court decision. The bill provides that the repeal of the Multistate Tax Compact provisions does not create any inference that a change in interpretation with respect to the compact or any reference to the compact prior to its repeal is implied.

Elections

The bill provides, under the doctrine of election, that any election affecting the computation of tax must be made on an original timely filed return for the taxable period for which the election is to apply and that, once made, the election is binding.

Earnings Withholding Orders for Taxes

For purposes of an earnings withholding order for taxes issued by the Franchise Tax Board (FTB), the definition of a "state tax liability," which currently includes only amounts for which the state has a state tax lien, is expanded to also include any personal income tax or corporation franchise or income tax liability that is due, payable, and unpaid.

FIRM Program

For purposes of the FIRM program, the definition of a "delinquent tax debtor," which currently only includes persons with debts referred to the FTB for collection, is expanded to include persons with various delinquent amounts payable to the BOE or the EDD. Ch. 37 (S.B. 1015), Laws 2012, effective June 27, 2012.


Omnibus Tax Bill Enacted; IRC Conformity Date Updated in North Carolina

Legislation updates the Internal Revenue Code conformity date for North Carolina personal and corporate income tax purposes; allows for an extended limitations period to qualify for refunds of specified Article 3J credits against personal income, corporate income and franchise, and insurance gross premium taxes; and makes numerous other technical and clarifying amendments. Additional sales and use and miscellaneous tax provisions are discussed in related stories.

IRC Conformity Date

The bill updates the state's Internal Revenue Code (IRC) conformity date from January 1, 2011, to January 1, 2012, for personal and corporate income tax purposes. However, any amendments made to the IRC after January 1, 2011, that increase North Carolina taxable income for the 2011 taxable year become effective beginning with the 2012 tax year.

Article 3J Credits

Additional amendments allow taxpayers that qualified for the Article 3J credits against personal income, corporate income and franchise, and insurance gross premium taxes as a result of the amendments made by Session Laws 2010-147 (H.B. 1973), which retroactively eased the environmental impact test used in determining eligibility for credits, to apply for credit refunds until January 1, 2013, if they would have qualified for the credit(s) during the 2007 through 2010 tax years as a result of these changes. The Article 3J credits are the credits for creating new jobs, investing in business property, and investing in real property.

Deduction for Basis Adjustment Due to Federal Energy Grant

The current corporate income tax deduction for the amount by which the basis of a depreciable asset is required to be reduced under the Internal Revenue Code for federal tax purposes because of a tax credit allowed against the corporation's federal income tax liability is clarified to also apply to reductions in basis because of a grant allowed under Section 1603 of the American Recovery and Reinvestment Tax Act of 2009 (P.L. 111-3).

Other Amendments

Additional amendments

  • revise the definition of "North Carolina taxable income" for nonresidents and part-year residents to change the fraction that is applied to the taxpayer's North Carolina adjusted gross income to one that is based on the taxpayer's gross income, as modified, rather than his or her adjusted gross income, as modified;
  • clarify that the North Carolina standard deduction amount is the lesser of the amount specified in the governing statute or the amount allowed under federal law, effective beginning with the 2012 tax year;
  • recodify the definitions of "parent,""subsidiary," and "affiliate" in a new code section;
  • modify the provision governing the filing of consolidated corporate income tax returns to delete the reference to the former "facts and circumstance" provision under which the Secretary could mandate the filing of a consolidated or combined return;
  • expand the definition of a "holding company" for corporate franchise tax purposes to include a corporation that has no assets other than ownership interests in corporations in which it owns more than 50% of the outstanding voting stock or voting capital interests. Previously, the definition was limited to a corporation that receives during its taxable year more than 80% of its gross income from corporations in which it owns directly or indirectly more than 50% of the outstanding voting stock or voting capital interests;
  • revise the innocent spouse relief provision for taxpayers whose spouse substantially understated their liability to allow for innocent spouse relief from North Carolina personal income tax if the taxpayer qualifies for innocent spouse relief under the applicable federal law. Previously, innocent spouse relief would only be granted for North Carolina personal income tax purposes if the taxpayer had received relief from his or her federal tax liability; and
  • prohibit estates and trusts from claiming the educators expense credit against personal income taxes.

Ch. 79 (S.B. 826), Laws 2012, effective June 26, 2012, except as noted above


U.S. Supreme Court Asked Whether Teachers Created Nexus for Mail-Order Bookseller

The U.S. Supreme Court has been asked to review a Connecticut Supreme Court decision holding that an out-of-state mail order company that sells books to teachers and students was liable for sales and use tax because the teachers acted as the corporation's representatives for purposes of establishing nexus to justify imposition of the taxes under the Commerce Clause. The Connecticut Supreme Court held that the teachers were in-state representatives of the bookseller corporation in that they served as the sole conduit through which the corporation advertises, markets, sells, and delivers its products to Connecticut schoolchildren. Although individual teachers may decide not to participate in the program, those who do participate distribute the corporation's catalogs, flyers, order forms, and other materials to children in their classrooms. The company is able to sell its products in Connecticut only through the teachers who participate in its program. Scholastic Book Clubs, Inc. v. Commissioner of Revenue Services, U.S. Supreme Court, Dkt. 11-1532, petition for certiorari filed June 25, 2012.


Sales and Use Tax: Utah Accepted as Full Member of SST Agreement

Meeting by conference call, the Streamlined Sales Tax (SST) Governing Board voted unanimously (19-0 with four states absent) in favor of accepting Utah as a full member of the SST Agreement, effective October 1, 2012. Bruce Johnson, Utah State Tax Commission, who has been working on the SST project for 12 years, said that this was a "particularly gratifying day" for him.

The SST Governing Board recently approved an amendment to the SST Agreement that permits states that apply origin-based sourcing to intrastate sales to become full members of the Agreement. That amendment cleared the way for Ohio and Utah, which are currently associate members, to become full members of the Agreement. It was reported in the meeting that Ohio Tax Commissioner Joseph W. Testa has requested more time to review his state's membership application and anticipates that Ohio's application will be reviewed during a September 2012 meeting.

The Governing Board also discussed federal legislation, noting that it remains opposed to the Digital Goods and Services Tax Fairness Act of 2011 (S. 971 and H.R. 1860) and that the best opportunity to advance federal remote-seller legislation will be after the November election. Conference call, Streamlined Sales Tax Governing Board, June 29, 2012.


Alabama

Severance, Miscellaneous Taxes: Electronic Filing Requirements Announced

Effective September 2012, taxpayers will be required to electronically file returns for all Alabama severance taxes and hazardous waste and solid waste fees by accessing the Department of Revenue's Internet portal called My Alabama Taxes (https://myalabamataxes.alabama.gov/). Taxpayers will also have the option of making payment for these taxes and fees via MAT. Instructional videos about the electronic filing system are available on the MAT home page. Notice, Alabama Department of Revenue, June 19, 2012.


Colorado

Multiple Taxes: Filing Relief Extended to Taxpayers Affected by Wildfires

The Colorado Department of Revenue advises taxpayers affected by the recent wildfires that it will generally honor the relief provisions that have been adopted by the Internal Revenue Service for all Colorado taxes administered by the department. Those persons should write the disaster reference wording that is required by the IRS in red at the top of their tax returns when they file.

If a taxpayer receives a bill or notice that it believes is incorrect based on these relief provisions or believes that additional relief is warranted, the taxpayer should submit a written explanation of why additional relief is appropriate and enclose a copy of the bill or notice. Letters of protest should be sent to the Colorado Department of Revenue, Denver, CO 80261.

Tax records requests: If tax records have been destroyed and copies of previously filed tax returns are needed, taxpayers should complete a notarized Form DR 5714 to request copies of the returns with the disaster reference wording written across the top of the form. This process will take approximately one to two weeks; returns filed more than five years ago may not be available. If the return was filed electronically, the taxpayer will receive a simulated printout of the return. Taxpayers also may access copies of tax returns, letters from the department and other documents through Colorado's Revenue Online service. Notice, Colorado Department of Revenue, June 27, 2012.


Connecticut

Income Tax: DRS Offers EIC Recordkeeping Suggestions

The Connecticut Department of Revenue Services has issued guidance that clarifies the recordkeeping requirements for self-employed persons to assist them in applying for the earned income credit against personal income taxes in future years. Among other things, the guidance provides advice for keeping good records, reminds taxpayers of the record retention period, summarizes the records review process, and provides sample logbook entries. Informational Publication 2012(9), Connecticut Department of Revenue Services, June 26, 2012.

Income Tax: 2012 Employer's Withholding Tax Guide Reissued

The Connecticut Department of Revenue Services has revised its Employer's Tax Guide for employers who withhold Connecticut personal income tax from their employees' wages in 2012. The guide provides general withholding rules and instructions, answers to frequently asked questions, a calendar of duties, sample remittance forms, and withholding calculation rules and tables for 2012. The guide was updated to reflect a revised version of Form CT-W4 (which was updated to reflect a revised definition of "new employees" for purposes of reporting new and rehired employees to the Department of Labor). The guide supersedes Informational Publication 2012(1). Informational Publication 2012(1.1), Employer's Tax Guide, Connecticut Department of Revenue Services, June 26, 2012.


Florida

Sales and Use Tax: Revised Secondhand Dealer and Secondary Metals Recycler Registration Requirements Discussed

Legislation enacted this year revised certain secondhand dealer and secondary metals recycler registration requirements and definitions for Florida sales and use tax purposes. The Florida Department of Revenue maintains a statewide registration system for secondhand dealers and secondary metals recyclers that oversees initial and annual registration renewals. Department staff also provide registration reports to law enforcement upon request. Beginning July 1, 2012, any person who is in the business of purchasing, consigning, or trading secondhand goods at a flea market must have a Certificate of Registration (DR-11S) issued for the flea market location, unless that person already has a business registered as a secondhand dealer in the same county as the flea market. Any person who purchases, consigns, or trades secondhand goods must register at least one address in that county. In addition, beginning July 1, 2012, an auction business that buys and sells estates, business inventory, surplus merchandise, or business liquidations is exempt from secondhand dealer registration requirements. A person may not engage in the business as a secondary metals recycler at any location without registering with the department. The department can accept applications only from a fixed business address and may not accept an application that provides an address of a hotel room or motel room, a vehicle, or a post office box. Tax Information Publication, No. 12A01-08, Florida Department of Revenue, June 29, 2012.

Miscellaneous, Tobacco Taxes: Reports Considered Late After September

Every seller (manufacturer, wholesaler, or distributor of alcoholic beverage or tobacco products who sells to a retailer in Florida) must submit a report electronically each year to the Department of Revenue (DOR). The report for state fiscal year 2011-2012 must include sales to Florida retailers from July 1, 2011 through June 30, 2012. The report was due on July 1, 2012, and will be late after September 30, 2012. Reports must be submitted electronically on the DOR's website at https://ritx-fl-abt.bswa.net/(S(eold5jf024kvwi45ops5f145))/Login.aspx. Each seller will receive a notice with its assigned user ID and password to access the system. The electronic filing requirement may be waived under certain circumstances. Taxpayers who are unable to report electronically should contact the DOR. However, taxpayers who cannot file electronically will still be required to file a report. Notice, Florida Department of Revenue, June 29, 2012.


Hawaii

Utilities Tax: Electric Reliability Surcharge Enacted

Effective July 1, 2012, an electric reliability surcharge is created affecting users, owners, and operators of the Hawaii electric system to be collected by electric utilities for the purposes of ensuring the reliable operation of the state electric system and overseeing grid access. Act 166 (S.B. 2787), Laws 2012, effective as noted above

Miscellaneous Tax: Nursing Facility Sustainability Fee Enacted

Effective July 1, 2012, through June 30, 2013, a provider fee is imposed on health care items or services provided by nursing facilities in Hawaii. The fee is based on the net patient service revenue of all nursing facilities that are subject to the sustainability fee and is calculated and paid on a per resident day basis, but may not exceed 4% of net patient service revenue. The Department of Human Services will determine, with agreement by the nursing facility trade associations located in Hawaii, the fee rate prospectively for the applicable fiscal year.

The fee is due within 30 days after the end of each month, with the initial payment due on the later of July 31, 2012, or 45 days after the required federal approvals for the assessment and any increase in health plan capitation payments have been secured from the Centers for Medicare and Medicaid Services. A penalty equal to 2% of the fee will be assessed for failure to pay the fee when due, in addition to other remedies, including suspension or revocation of a nursing facility license. Subject to federal approval, exemptions from the fee may be provided for nursing facilities with 28 or fewer licensed beds, nursing facilities owned or operated by the Hawaii Health Systems Corporation, and continuing care retirement communities. Act 156 (S.B. 2466), Laws 2012, effective as noted

Multiple Taxes: Regulatory Structure for Interisland Electric Transmission System Enacted

Effective July 1, 2012, a Hawaii public utility regulatory structure is enacted under which interisland undersea electric transmission cables can be developed, financed, and constructed. A cable surcharge is established to allow recovery of the high-voltage electric transmission cable system costs designated for recovery. Amounts received in the form of a cable surcharge by an electric utility company acting on behalf of a certified cable company are not considered gross income, adjusted gross income, or taxable income for state income tax purposes; gross income for purposes of the public service company tax; or gross receipts for purposes of the public utilities franchise tax, provided that any amounts retained by that electric utility company for collection or other costs may not be included in the exemptions. Act 165 (S.B. 2785), Laws 2012, effective as noted above


Illinois

Sales and Use Tax: Officer Personally Liable for Penalties and Interest

An Illinois appellate court affirmed a ruling that an Illinois notice of penalty liability be upheld against a corporate officer of a corporation that owned a restaurant because the officer acted as a responsible officer who willfully failed to pay sales taxes. Corporate officers or employees who are responsible for filing sales tax returns and paying taxes, and who have willfully failed to file returns or remit taxes, may be personally liable for a corporation's unpaid sales taxes. Persons who are required to collect, truthfully account for, and pay over any tax are considered responsible persons. Further, a responsible person who is in a position to easily discover nonpayment of taxes and who clearly ought to have known of a grave risk of nonpayment, but did nothing, willfully fails to file and pay taxes.

The appellate court found that the officer had significant control and authority over the restaurant's business affairs and was a responsible officer of the corporation. The Department of Revenue provided a Form ST-15, Business Information Update, with the officer's signature and Social Security number stating that the officer accepts personal responsibility for filing sales tax returns and paying taxes due. In addition, the officer owned 75% of the shares of the corporation, visited the restaurant several times a week, spoke with the manager about restaurant affairs, had authority to sign checks on behalf of the corporation, promoted an employee to manager, retained an accounting firm and entered negotiations for a new lease. He was aware that the restaurant had financial difficulties.

Further, the court found that the officer's failure to pay taxes despite his knowledge of the restaurant's financial difficulties showed that he recklessly disregarded obvious or known risks and, therefore, acted willfully. The officer was an owner of the corporation, was in a position to inspect the corporation's books to determine whether taxes had been paid, and had check-writing authority and could pay taxes due. Cerone v. State of Illinois, Appellate Court of Illinois, First District, No. 09 L 51032, June 26, 2012.


Indiana

Sales and Use Tax: Industrial Production Exemption Discussed

The Indiana Department of Revenue has issued a letter of finding discussing the industrial production exemption from sales and use tax. Purchases of a crusher and related items by a processor of limestone products qualified for the exemption because the crusher was directly used in the taxpayer's production process. Machinery and equipment is exempt when it is used directly in the direct production of tangible personal property. The processor used the crusher to crush limestone slabs into multiple types of products sold by the processor. The department determined that the processor's production process began with the placement of materials into the crusher and ended with the various processed products that come out of the crusher. Loaders and other related items were not exempt. The processor used the loaders to blend aggregate, which is the result of the crushing process. The blending of already-formed aggregate was determined to be a post-production activity. Letter of Findings No. 04-20110122, Indiana Department of Revenue, June 27, 2012.

Sales and Use Tax: Medical Practice's Contract With Imaging Company Was Taxable

A medical practice was liable for Indiana use tax on a contract with an imaging company because the contract constituted a lease agreement. A taxable lease does not include providing tangible personal property along with an operator if the operator is necessary to operate the equipment and the operator does more than maintain, inspect or set up the equipment. The practice's contract stated that the company's equipment and personnel would be leased to the practice and that the practice would control and supervise the personnel to the same extent as if it directly employed the personnel. The Department of Revenue determined the contract was a lease under the plain terms of the contract. Letter of Findings No. 04-20110484, Indiana Department of Revenue, June 27, 2012.

Sales and Use Tax: Fees for Emailing Services Were Nontaxable

Fees paid by a retailer for mass emails sent on its behalf by a third party were not subject to Indiana sales and use tax because there was no transfer of tangible personal property or specified digital product. A taxable retail transaction occurs if a person (1) electronically transfers specified digital products to an end-user; and (2) grants to the end-user the unconditional right of permanent use of the specified digital products. A third party provided mass email services to the retailer in exchange for a fee. The emails included general company announcements, promotions, schedules, new product releases and other communication. Letter of Findings No. 04-20110492, Indiana Department of Revenue, June 27, 2012.


Kansas

Sales and Use Tax: Guidance Issued for Telecommunication Tower Construction and Maintenance Providers

The Kansas Department of Revenue has issued a new self-audit fact sheet on the retailers' sales tax treatment of transactions involving telecommunication tower construction and maintenance. The fact sheet provides answers on whether retailers' sales tax or compensating use tax applies to various purchases made by telecommunication tower construction and maintenance providers, and whether retailers' sales tax applies to their sales of tangible personal property and labor services. The department cautions that the sales tax exemption applicable to charges for installing or applying tangible personal property in connection with the original construction of a building or facility does not apply to charges for the construction of telecommunication towers. Information Guide: Telecommunication Tower Construction and Maintenance Self-Audit Fact Sheet, Kansas Department of Revenue, June 27, 2012.


Maine

Sales and Use Tax: Guidance for Vehicle Dealers Updated

Maine has updated sales tax guidance for vehicle dealers. The bulletin now notes that rentals of camper trailers and motor homes are taxable, effective October 1, 2012. The discussion of a dealer's and lessor's proof of sales tax collected has been revised. Sales, consignment, leases and rental of vehicles are discussed. Form ST-MV-8 (Dealer's and Lessor's Supplemental Report) can be submitted electronically or in paper form. The bulletin provides guidance on the filing of the form. A dealer that completes Form ST-MV-36 (Out-of-State Delivery Affidavit) must retain the form in its files for future review upon audit rather than file it with its supplemental sales tax report. Sales and Use Tax Instructional Bulletin No. 24, Maine Revenue Services, July 1, 2012.

Sales and Use Tax: Guidance on Watercraft, Snowmobiles and All-Terrain Vehicles Updated

Maine has revised a sales and use tax bulletin covering the original registration of watercraft, snowmobiles and all-terrain vehicles. Topics discussed include dealer sales, use tax certificates, sale price, trade-ins, tax exemptions, leases, special situations including sales by estates, divorce transfers, and credits to other jurisdictions, and the review of purchase prices and exemptions by Maine Revenue Services. Sales and Use Tax Instructional Bulletin No. 47, Maine Revenue Services, July 1, 2012.

Multiple Taxes: New Appeal Process Outlined for Assessments, Other Determinations

The process for appealing a Maine tax assessment or other determination made by Maine Revenue Services (MRS) will formally change on July 1, 2012, and Maine Revenue Services has provided guidance on those changes.

To appeal a Maine tax assessment or MRS determination, the taxpayer must, within 60 days of receiving the assessment or determination, submit a request for reconsideration. The request must be made to: Division Reconsideration, Maine Revenue Services, PO Box 1060, Augusta, ME 04332-1060. MRS has provided a Petition for Reconsideration form at http://www.maine.gov/revenue/forms/general/generalforms.htm to assist taxpayers in making a request for reconsideration. Beginning July 1, 2012, this procedure replaces the procedure that required requests for reconsideration to be filed with the MRS Appellate Division. The MRS Appellate Division ceases to exist on July 1, 2012.

The Division has 90 days from receipt of a request for reconsideration to issue a decision approving or denying the relief requested by the taxpayer. Any taxpayer not satisfied with a decision or deeming the request for reconsideration denied may, within 60 days of receiving the decision, file a petition for review in the Superior Court. As another option, a taxpayer may first appeal the matter to the Maine Board of Tax Appeals within 60 days of receiving the decision, if the petition for reconsideration originally filed with MRS does not constitute a "small claim request." A small claim request may only be appealed to Superior Court. Decisions of the Board of Tax Appeals may be appealed by the taxpayer or MRS to the Superior Court. Maine Tax Alert, Vol. 22, No. 5, Maine Revenue Services, June 28, 2012.


Massachusetts

Income Tax: Guidance Provided on NOL Carryforward for S Corporations and Their Qualified Subsidiaries

The Massachusetts Department of Revenue has issued a directive that discusses the Massachusetts corporate excise and personal income tax treatment of net operating loss (NOL) carryforward for tax years after December 31, 2008, for S corporations and their qualified S corporation subsidiaries (QSubs). Specifically, the directive addresses the consequences of recent statutory changes with respect to the taxation of S corporations and their QSubs.

Generally, an S corporation filing its returns for a tax year after 2008 is permitted to use a loss carryforward that was generated by its QSub. To calculate the amount of the NOL, a QSub must calculate the income or loss for each year beginning with the taxable year after the loss year, whether or not the QSub was subject to the Massachusetts tax. The loss is then reduced by the QSub's positive income amounts in succeeding tax years for the five-year carryforward period.

Carryforward Calculation

Specific to tax years prior to January 1, 2009, in order for an S corporation to use a loss carryforward that derives from a QSub, the QSub must perform a carryforward calculation for all intervening tax years. For tax years in which the QSub is subject to Massachusetts tax on its income the loss or income that is included in the carryforward calculation is the actual Massachusetts net income amount before apportionment. For years in which the QSub is not subject to the income tax, the QSub must perform a pro forma calculation of its income or loss for that year. The carryforward amount must be reduced by the income that derives from a year after the year in which the loss was generated. The calculation must be performed for each year until the QSub is no longer treated as a separate taxable entity or until the carryforward is fully depleted. If the NOL carryforward is fully depleted by reason of the calculation, the S corporation is not entitled to use any of the QSub's carryforward.

Pre-apportionment and Post-apportionment Carryforward Rules

There are two different rules for calculating the amount of an NOL that can be carried forward because of recent statutory changes. For the 2009 tax year an S corporation can generally use an allowable loss carryforward amount and those losses are carried forward on a pre-apportionment basis. For tax years after January 1, 2010, an S corporation may use an allowable NOL carryforward amount but it must be determined and carried forward on a post-apportionment basis. Further, the amount of the loss carryforward taken by the S corporation that is attributable to an individual entity for a prior taxable year is determined in proportion to the amount of each entity's carryforward loss available from that prior taxable year, subject to the relevant pre-apportionment or post-apportionment rules.

Finally, the directive provides examples on how to report NOL carryforwards on a return and how to report the use of the post-apportionment losses. Directive 12-3, Massachusetts Department of Revenue, June 27, 2012.

Property Tax: Veterans' Exemption Will Not Be Denied Due to Return to Active Duty

Legislation is enacted providing that no veteran or his or her surviving spouse who receives a Massachusetts property tax exemption for their real property owned and occupied as a domicile will be denied the benefit of the exemption because the veteran returns to active service.

The legislation also authorizes cities or towns to establish a program allowing veterans to volunteer to provide services to that city or town in exchange for a reduction in the veteran's real property tax obligations. The reduction is in addition to any exemption or abatement to which the veteran is otherwise entitled, provided, however, that the rate does not exceed the current minimum wage of the commonwealth per hour for the services provided pursuant to that reduction. The reduction of the real property tax bill must not exceed $1,000 in a given tax year. The amount by which the veteran's property tax liability is reduced in exchange for the volunteer services will not be considered income, wages, or employment for purposes of taxation; for purposes of withholding taxes; or for purposes of workers' compensation. Ch. 108 (S.B. 2254), Laws 2012, effective May 31, 2012.


Michigan

Income Tax: Accelerated Rate Reduction Enacted

Michigan Gov. Rick Snyder has signed legislation to accelerate a scheduled personal income tax rate reduction. The rate is reduced from 4.35% to 4.25% on October 1, 2012, instead of January 1, 2013. Act 223 (H.B. 5699), Laws 2012, effective June 29, 2012; Press Release, Michigan Gov. Rick Snyder, June 29, 2012.

Income Tax: Exemption Amount Increased

The Michigan personal income tax exemption amount is increased to $3,950 from $3,700, beginning October 1, 2012. The amount for the 2012 tax year will be annualized. Beginning January 1, 2014, the exemption amount is $4,000. The exemption will continue to be multiplied by the number of personal or dependency exemptions allowed on the taxpayer's federal income tax return. Act 224 (H.B. 5700), Laws 2012, effective June 29, 2012.

Income Tax: Exemptions From Withholding Requirements for Flow-Through Entities Added, More

The Michigan personal income withholding tax requirements for flow-through entities have been revised to add exemptions from withholding and clarify filing requirements.

Exemption Certificate

A corporation may give a flow-through entity an exemption certificate. In this case, the flow-through entity is not required to withhold tax on the distributive share of that corporation's business income, provided that these conditions are met:

  • the exemption certificate is completed and certifies that the corporation will file corporate income tax returns, pay the tax on the distributive share of business income received from any flow-through entity in which the corporation is a member or in which the corporation has an ownership or beneficial interest, and submit to Michigan's taxing jurisdiction;
  • the corporation must file the exemption certificate with the Department of Treasury and include a copy to the flow-through entity;
  • the flow-through entity must attach a copy of the exemption certificate to its annual reconciliation return; and
  • the corporation and the flow-through entity must keep a copy of the exemption certificate.

The department may revoke the election to use an exemption certificate if the corporation or flow-through entity is not abiding by the certificate's terms.

Other Withholding Exemptions

Flow-through entities are not required to withhold for a member that voluntarily elects to file a return and pay the tax. Also, there is no withholding required for a person who disburses annuity payments under the terms of a qualified charitable gift annuity.

Filing Requirements

The flow-through entity withholding quarterly payments are due April 15, July 15, October 15, and January 15. Previously, the quarterly payments were due April 15, June 15, September 15, and January 15. [Note: This change conforms the statute to the department's instructions for Form 4917, Flow-Through Withholding Quarterly Return.]

Finally, to calculate the $200,000 withholding threshold for flow-through entities, taxpayers should apportion business income to Michigan with the flow-through entity's sales factor. The sales factor's numerator is total sales in Michigan during the tax year, and the sales factor's denominator is total sales everywhere during the tax year. Act 217 (S.B. 1104), Laws 2012, effective June 28, 2012.

Property Tax: Department of Treasury Could Not Use Three-Year Clawback Provision to Collect Taxes

The Michigan Tax Tribunal misinterpreted the Department of Treasury's authority under the property tax principal residence exemption statute by allowing the department to use the three-year clawback provision to collect taxes from a taxpayer for years 2005 through 2008 because the taxpayer never filed a claim for a principal residence exemption for her property. The three-year clawback provision established procedures for the department to evaluate the validity of a taxpayer's claim for the exemption and to deny the claim if the department determined that the property was not the principal residence of the owner claiming the exemption. The provision references the word "claim," and a claim for an exemption was not properly filed unless the owner submitted an affidavit with the taxing unit. In this case, the taxpayer did not file an affidavit with the township, nor was it disputed that she did not claim the exemption. Therefore, it was not possible for the department to determine the validity of, or to deny, an exemption that was never claimed. Mikelonis v. Department of Treasury, Michigan Court of Appeals, No. 304054, June 26, 2012.

Property Tax: Land Bank Fast Track Authority Allowed to Exempt Eligible Tax Reverted Property

A land bank fast track authority is allowed to exempt eligible tax reverted property from the Michigan eligible tax reverted property specific tax if the exemption would assist in the creation of jobs, investment, or other economic development benefits in the city, village, or township in which the eligible tax reverted property is located. Eligible tax reverted property that is exempt from the specific tax is subject to the collection of taxes under the general property tax provisions. Act 222 (H.B. 5646), Laws 2012, effective June 28, 2012.

Property Tax: Taxable Values of Single-Family Residence Could Not Be Retroactively Uncapped

The Michigan Tax Tribunal correctly determined that the taxable values of taxpayers' single-family residence for property tax years 2005 through 2008 could not be retroactively uncapped because this case was controlled by the Michigan Supreme Court's decision in Michigan Properties, LLC v. Meridian Township, Nos. 143085, 143086, 143087, and 143281 (2012), which held that taxable value could not be retroactively uncapped, but the March board of review did possess the power to prospectively uncap the taxable value to correct an error in failing to previously uncap the taxable value. Therefore, the Michigan Court of Appeals affirmed the determination by the tax tribunal on remand of the taxable values for tax years 2005 through 2008. However, the appellate court ruled that the tax tribunal erred in concluding that the March board of review in 2009 could not uncap the taxable value beginning in 2009. Ryzyi v. Township of Bagley, Michigan Court of Appeals, No. 295759, June 28, 2012.

Property Tax: Person Liable for Taxes on Property Transferred to Indian Tribe

A person is liable for delinquent local Michigan property taxes that are owed on property that the person sold, transferred, or otherwise conveyed to an Indian tribe that is recognized by the United States, an enrolled member of a recognized tribe, a tribal corporation that is incorporated under the tribe's own laws or under federal law, or an unincorporated tribal entity that is owned exclusively by the tribe and/or its members, making the property exempt under federal law from forfeiture, foreclosure, and sale under the general property tax provisions for the delinquent taxes. Specifically, the taxes are a personal liability of the transferor to whom the delinquent taxes were originally billed. The transferor is subject to the collection of the delinquent taxes. Act 234 (H.B. 5609), Laws 2012, effective June 29, 2012.

Property Tax: Tax Tribunal Judgment Interest Rate Calculation Changed

Beginning July 1, 2012, the Tax Tribunal Act has been amended to provide for interest on property tax judgments of the Michigan Tax Tribunal to accrue at one percentage point above the adjusted prime rate, instead of the rate currently prescribed. "Adjusted prime rate" means the average predominant prime rate quoted by at least three commercial banks to large businesses, as determined by the Department of Treasury. The adjusted prime rate is based on the average prime rate charged by at least three commercial banks during the six-month periods ending on March 31 and September 30. One percentage point is added to the adjusted prime rate, and the resulting sum is divided by 12 to establish the current monthly interest rate. The resulting current monthly interest rate that is based on the six-month period ending March 31 becomes effective on the following July 1, and the resulting current monthly interest rate that is based on the six-month period ending September 30 becomes effective on January 1 of the following year.

Currently, the Tax Tribunal interest rate is calculated once a year rather than monthly. The interest rate is set each year based on the average rate of the 91-day treasury bills in the immediately preceding state fiscal year, plus 1%, as certified by the Department of Treasury. Act 220 (H.B. 5340), Laws 2012, effective June 28, 2012.

Multiple Taxes: Legislation Stipulates the Effect of Filing Tax Return

Legislation has been enacted which stipulates that the filing of a Michigan tax return includes the filing of a combined, consolidated, or composite return whether or not any tax was paid and whether or not the taxpayer reported any amount in the tax line including zero. The change is retroactive and effective for all tax years that are open under the statute of limitations that is provided in the applicable provision for all matters regarding the filing of a return under the provision. However, the change is not intended to affect a refund that is required by a final order of a court of competent jurisdiction for which all rights of appeal were exhausted or expired before May 1, 2012. Act 211 (H.B. 5543), Laws 2012, effective June, 27, 2012.


Minnesota

Income Tax: Fact Sheets Updated to Reflect Repeal of 2% Withholding for Individual Construction Contractors

The Minnesota Department of Revenue has updated several guidance documents discussing Minnesota personal income tax withholding responsibilities to remind taxpayers about the repeal of the 2% withholding tax for certain self-employed workers used on construction projects. As previously reported, after June 30, 2012, businesses are no longer required to withhold 2% from payments made to individual construction contractors. Withholding Fact Sheet 9, Definition of Wages; Withholding Fact Sheet 10, New Employer Guide; and Withholding Fact Sheet 18, Minnesota Income Tax Withholding on Payments to Independent Contractors in the Construction Trade; Minnesota Department of Revenue, June 2012.


Missouri

Income Tax: Small Business Job Creation Deduction Provision Amended

The Missouri corporate and personal income tax provision allowing a deduction to small businesses for the creation of new jobs has been amended to clarify that a qualifying small business may be formed as a sole proprietorship, partnership, S corporation, C corporation, limited liability company, limited liability partnership, or other business entity. Also, language has been added that allows a partnership, limited liability company, S corporation, or other pass-through entity to allocate the deduction to its partners, members, or shareholders. H.B. 1661, Laws 2012, effective August 28, 2012.

Sales and Use Tax: Meal Replacement Shake Mix and Cookies Subject to Reduced Tax Rate

A company's sales of meal replacement shake mix and cookies consumed at home are subject to the Missouri reduced food sales tax rate. The shake mix is designed to replace a meal and not supplement a meal, and the cookies are dietary food items meant to replace and not supplement a meal. The taxpayer's website indicates that its shake mix carries a nutrition facts label. The taxpayer also provided labeling information that shows that the cookie packaging carries a nutrition facts label. Because the taxpayer's shake mix and cookies carry nutrition facts labels, they are considered food products. Therefore, if the shakes and cookies are for home consumption and not for consumption elsewhere, the taxpayer's shake mix and cookies are subject to the state reduced food sales tax rate, plus the local sales tax rate.

However, the taxpayer's sales of bundles or kits that contain both food items and dietary supplements are subject to the regular state sales tax rate. To qualify for the reduced food sales tax rate for the food items, the taxpayer must separately state the value of the food items from the value of the non-food items contained in the kit or bundle. Since only one price is listed for the bundle or kit of food and non-food items, the entire price is subject to the regular sales tax rate. Letter Ruling No. LR 7108, Missouri Department of Revenue, June 11, 2012.


Nebraska

Motor Fuel Tax: Refund Rate Tables Released for Exempt Entities, Nontaxable Uses

The Nebraska Department of Revenue has issued a refund rate table for taxpayers to use when claiming a refund of Nebraska fuel tax paid on fuel used by an exempt entity or for a qualified nontaxable use. The refund is claimed on a Nebraska Non-Ag Use Motor Fuels Tax Refund Claim, Form 84, or a Nebraska Ag Use Motor Fuels Tax Refund Claim, Form 84AG. Release, Nebraska Department of Revenue, June 28, 2012.


New Jersey

Income Tax: Phase-In of Rate Reduction Introduced

Legislation introduced in the New Jersey Senate would, if enacted, reduce the gross (personal) income tax rate by 10% over a three-year period. In each of the three tax years, beginning with the 2013 tax year, the rate would be reduced by 3 1/3%. S.B. 2105, introduced in the New Jersey Senate, June 25, 2012.

Property Tax: Taxability of Local Exchange Telephone Companies Must Be Determined Annually

A local exchange telephone company was granted partial summary judgment in its appeal of New Jersey local personal property tax for tax year 2009 based on a change in its status. New Jersey law, N.J.S.A. 54:4-1, imposes an annual local property tax on local exchange telephone companies that provide dial tone and access to 51% of a local telephone exchange. The statute further provides that taxable personal property includes property used in the business of local exchange telephone companies that were subject to tax as of April 1, 1997. In 2008, the taxpayer informed the borough by letter that it no longer met the 51% test and, therefore, was no longer required to file a tax return for the reporting of tangible personal property used in business by a local exchange telephone company. The borough, however, issued a property tax assessment against the taxpayer for tax year 2009, contending that the 51% test was not an annual test and that the New Jersey Legislature intended it to be applied just once, on April 1, 1997. However, the plain language of the statute supported the taxpayer's construction of the statute and requires an annual determination as of the assessment date as to whether a local telephone exchange company provides dial tone and access to 51% of a telephone exchange. As construed, the statute does not violate the Equal Protection Clause of the United States Constitution or similar guarantees of equal protection under the New Jersey Constitution, the prohibition against special legislation contained in the New Jersey Constitution, or the Uniformity Clause of the New Jersey Constitution. Verizon New Jersey, Inc. v. Hopewell Borough, New Jersey Tax Court, No. 012215-2009, June 26, 2012.

Multiple Taxes: Governor Signs FY 2013 Budget, Delays Tax Cuts

On June 29, 2012, New Jersey Governor Gov. Chris Christie signed the fiscal year 2013 state budget that includes many of the provisions contained in his budget proposal, but excludes a 10% cut in gross (personal) income tax rates to be phased in over three years. Instead, the bill places $183 million for a tax cut in escrow until January 2013, which would be used for property tax relief pending revenue growth in the state. S.B. 2013, Laws 2012, effective July 1, 2012; Press Release, New Jersey Gov. Chris Christie, June 30, 2012.


New York

Income Tax: S Corporation Not Created for Valid Business Reason Could Not Claim QEZE Credit

A taxpayer was not eligible for a qualified empire zone enterprise (QEZE) credit against his New York personal income tax liability. The taxpayer created an S corporation. All income attributes flowed through the S corporation to the taxpayer. A second company, of which the taxpayer was part of the management team, entered into a payment in lieu of tax agreement (PILOT agreement) with the Onondaga County Industrial Development Agency. The agreement governed the payments in lieu of real property taxes that would otherwise have been assessed against the company's real property. The taxpayer's S corporation was the successor in interest to this second company.

The S corporation, the second company, and a holding company, also connected to the taxpayer, then entered into a reaffirmation agreement which included the transfer of the obligation to pay all real property taxes from the S corporation to the holding company. After an audit of the taxpayer, the Division of Taxation determined that the taxpayer's S corporation was not created for a valid business purpose, but rather to maximize tax incentives.

In addition to claiming the QEZE credit through the S corporation, the taxpayer also claimed the credit through the holding company. Because the holding company was not a party to the written contract with Onondaga County, it was ineligible to claim the credit. Falso, New York Division of Tax Appeals, Administrative Law Judge Unit, DTA No. 823587, June 21, 2012.

Sales and Use Tax: Digital Movie Files Delivered to Movie Theaters Via Hard Drives Not Taxable

Movie theater operators' payments to motion picture distribution companies for licenses to exhibit motion pictures delivered to the theaters in digital format via portable computer hard drives were not subject to New York sales and use tax. Upon receipt of a portable hard drive, the taxpayers' personnel copied or "uploaded" the digital motion pictures onto a digital media block or computer server that was part of the taxpayers' digital motion picture projection computer system. The original data files remained on the hard drives. The hard drives were then returned to the motion picture distributors. The administrative law judge determined that the primary purpose of the transactions was to exhibit motion pictures to the public in exchange for payment. Tangible personal property was not employed in carrying out the primary purpose of the transaction (i.e., exhibition of the content). Unlike 35 mm film, which had to be possessed and used by theaters in order to exhibit a motion picture, hard drives were "ancillary vessels" used for the delivery of the intangible digital files to the theaters and were not required for the ongoing exhibition of the motion picture. The use of hard drives as temporary containers to transport digital motion picture files was deemed insufficient to support imposition of sales tax. Therefore, the transactions at issue were not subject to tax. American Multi-Cinema, Inc., New York Division of Tax Appeals, Administrative Law Judge Unit, DTA Nos. 823589, 823590, and 823646, June 21, 2012.

Sales and Use Tax: Cap Amount for Electronic News Services Exemption Announced

The New York Department of Taxation and Finance has announced that the cap amount for purposes of the sales tax exemption for electronic news services in effect for sales or uses of such services that occur from June 1, 2012, to May 31, 2013, is $2,190. Previously enacted legislation provided an exemption from sales and use taxes for the sales and use of certain electronic news services. One of the conditions for the exemption is that the service must be sold at or below the cap amount. Important Notice N-12-7, New York Department of Taxation and Finance, June 2012.

Property Tax: Redemption Notice Failed to Satisfy Notice Requirements

A decision to vacate and extinguish a mortgage interest held by the purchaser of a New York property tax lien was affirmed by a state appellate court. The initial tax lien purchaser sent a notice to pay the tax lien to the delinquent landowner. However, the notice was returned with the notation "refused" because the sole officer and shareholder of the corporation had died prior to the issuance of the notice.

The appellate court affirmed the finding that the redemption notice sent to the corporation failed to comply with the requirements of due process. In addition, the conveyance of the tax lien to an affiliate of the purchaser was not a bona fide purchase of value because the affiliate paid well below fair market value and obtained its interest by quitclaim deed when the original notice of pendency in the lawsuit against of the purchaser was in effect. 89 Pine Hollow Road Realty Corp. v. American Tax Fund, Foothill, Appellate Division of the Supreme Court of New York, Second Department, Nos. 2010-05769, 2010-11039, June 27, 2012.

Property Tax: Exemption Appeal Order Modified

A trial court improperly dismissed a New York property tax exemption appeal because the housing project corporation established that it was the owner of two of the properties at issue, according to the state appellate court. The dismissal of the appeal on a third parcel was affirmed because the corporation was not the owner of the property and there was no evidence indicating that the owner ever filed an administrative complaint for review of the assessment of that property. Circulo Housing Development Fund Corp. v. Assessor of City of Long Beach, Appellate Division of the Supreme Court of New York, Second Department, No. 2011-09709, June 27, 2012.

Tobacco Tax: Minimum Wholesale, Retail Cigarette Price Publication Updated

The New York Department of Taxation and Finance has updated a cigarette tax publication that lists the revised minimum wholesale and retail prices for certain brands of cigarettes. The minimum price enforcement date for the notice is June 25, 2012. Publication 509, New York Department of Taxation and Finance, June 2012.

Tobacco Tax: Allocation of Cigarettes to Indian Nations Released

For cigarette tax purposes, the New York Department of Taxation and Finance has determined the annual amount of stamped tax-exempt packs of cigarettes for each of the Indian nations or tribes for the next 12-month period beginning September 1, 2012, and ending August 31, 2013. The recognized governing body of an Indian nation or tribe may submit evidence relating to probable demand and/or relating to the amount needed for the nation's or tribe's official use. Any evidence submitted by July 31, 2012, will be considered, and any adjustments will be made prior to the 12-month period beginning September 1, 2012. All evidence must be submitted in writing and sent to the tax department. Important Notice N-12-6, New York Department of Taxation and Finance, June 2012.


North Carolina

Income Tax: Tax Refund Offset Authorized to Collect Debts Owed to Regional Solid Waste Management Authority

North Carolina regional solid waste management authorities are included in the list of local agencies that may offset personal income tax refunds of at least $50 in order to collect delinquent debts owed to the agency. Ch. 88 (H.B. 605), Laws 2012, effective January 1, 2013, and applicable to tax refunds determined by the Department of Revenue after 2012.

Sales and Use Tax: Interstate Passenger Air Carrier Refund Clarified; New Refund for State Ports Enacted

The North Carolina sales and use tax refund for interstate passenger air carriers is clarified, and a new refund is enacted for purchases of specialized equipment used at state ports.

Interstate Passenger Air Carrier Refund Clarified

Effective June 26, 2012, and applicable to calendar year 2010, an interstate passenger air carrier that is eligible for a refund of sales and use taxes paid on fuel in excess of $2,500,000, as provided, shall submit one request for a refund for the entire calendar year, notwithstanding the fact that the first six months of 2010 are subject to §105-164.14(a1) and the last six months of 2010 are subject to §105-164.14A(a)(1).

Effective January 1, 2011, an interstate passenger air carrier is allowed a refund of the sales and use tax paid by it on fuel in excess of $1,250,000 for the period January 1, 2011, through June 30, 2011. The state portion of the refund may not exceed $3,150,000. The amount of sales and use tax paid does not include a refund allowed to the interstate passenger air carrier under §105-164.14(a). A refund request must be in writing, must include any information and documentation required by the Secretary of Revenue, and is due before October 1, 2012. A refund applied for after the due date is barred.

Refund for Purchases of Specialized Equipment Used at State Ports

Effective June 26, 2012, and applicable to purchases made on or after July 1, 2012, but before July 1, 2013, a company located at a ports facility for waterborne commerce that purchases specialized equipment to be used at the facility to unload or process bulk cargo to make it suitable for delivery to and use by manufacturing facilities is allowed a refund of all local sales and use taxes paid and a portion of state sales and use taxes paid on the purchases. The portion of the state sales and use taxes that may be refunded is equal to the excess of the state sales and use taxes paid over the amount that would have been due had the taxpayer been subject to tax on the eligible property as if it were mill machinery under Article 5F of Chapter 105 of the General Statutes. A refund request must be in writing, must include any information and documentation required by the secretary, must be made on or after July 1, 2013, and is due before January 1, 2014. Refunds applied for after the due date are barred. Taxes for which a refund is allowed under this section are not an overpayment of tax and do not accrue interest, as provided.

Income tax, and public utilities and insurance provisions are discussed in related stories. Ch. 74 (H.B. 1015), Laws 2012, effective as noted

Sales and Use Tax: Items Given Away Considered Sold; Definitions Amended, Other Technical Changes Made

Technical and clarifying amendments are made to North Carolina sales and use tax provisions.

Amended Definitions

Definitions are amended for sales and use tax purposes, including:

  • an "over-the-counter drug" is defined as a drug that contains a label that identifies the product as a drug, as required, and the label includes either of the following: (1) a "Drug Facts" panel; and (2) a statement of its active ingredients with a list of those ingredients contained in the compound, substance, or preparation; and
  • "Streamlined Agreement" is defined as the Streamlined Sales and Use Tax Agreement as amended as of December 19, 2011.

Items Given Away by Merchants

In addition, effective August 7, 2009, if a retailer engaged in the business of selling prepared food and drink for immediate or on-premises consumption also gives prepared food or drink to its patrons or employees free of charge, the property given away is considered sold along with the property sold. If a retailer gives an item of inventory to a customer free of charge on the condition that the customer purchase similar or related property, the item given away is considered sold along with the item sold. In all other cases, property given away or used by any retailer or wholesale merchant is not considered sold, regardless of whether the retailer or wholesale merchant recovers its cost of the property from sales of other property.

Income tax and miscellaneous tax provisions are discussed in related stories. Ch. 79 (S.B. 826), Laws 2012, effective June 26, 2012, unless otherwise noted

Motor Fuel Tax: Legislature Overrides Budget Veto

The North Carolina General Assembly has overridden Gov. Bev Perdue's veto of H.B. 950, The Current Operations and Capital Improvement Act of 2012, which contains a provision to cap the motor fuels excise tax for gasoline, diesel, and alternative fuels at the rate of 37.5 cents per gallon for the period July 1, 2012, through June 30, 2013. The Department of Revenue previously announced that the motor fuel tax rate for the period July 1, 2012, through December 31, 2012, was set at 37.7 cents per gallon. A statement of the revised tax rate effective July 1, 2012, was not available at press time. Ch. 142 (H.B. 950), Laws 2012, effective July 1, 2012; Telephone Conversation, North Carolina Department of Revenue, July 3, 2012.

Utilities, Insurance Taxes: Insurance and Public Utility Regulatory Fees Set

The North Carolina insurance regulatory charge will remain at 6% for the 2012 calendar year. Effective July 1, 2012, the quarterly public utility regulatory fee will remain unchanged at 0.12% for each public utility's North Carolina jurisdictional revenues earned during each quarter that begins on or after July 1, 2012, and the electric membership corporation regulatory fee will remain at $200,000 for the 2012-2013 fiscal year. Provisions related to income taxes and sales and use taxes are reported separately. Ch. 74 (H.B. 1015), Laws 2012, effective June 26, 2012, except as noted

Multiple Taxes: Technical Corrections Made to Various Provisions

North Carolina has enacted a technical corrections bill that amends various provisions relating to state tax filing and payment penalties, piped natural gas tax, property tax on motor vehicles, motor fuel taxes, the tobacco products tax, and unauthorized substance taxes. Additional income tax and sales and use tax provisions are discussed in related stories.

Penalty for Failure to Timely File or Pay Taxes

The $5 minimum penalty for failure to timely file or pay taxes is removed. A taxpayer who fails to file a timely return is subject to a penalty of 5% per month of the amount of the tax, up to a maximum of 25%. Failure to pay taxes when due, without intent to evade, will result in a penalty assessment of 10% of the tax.

Prepayment Requirement for Piped Natural Gas Tax

Taxpayers consistently liable for at least $20,000 per month (formerly, $10,000 per month) in piped natural gas tax must make a monthly prepayment of the next month's tax liability.

Property Taxes on Classified Motor Vehicles

The owner of a classified motor vehicle may appeal the vehicle's eligibility for a property tax exemption or exclusion by filing a request for appeal with the assessor within 30 days of the assessor's initial decision on the exemption or exclusion. Listing requirements for classified vehicles based on registration dates are also outlined.

Interest on unpaid taxes and registration fees on classified motor vehicles accrues at the rate of 5% for the remainder of the month following the date in which the registration renewal sticker expired. Interest accrues at the rate of 0.75% beginning the second month following the due date and for each month thereafter until the taxes and fees are paid.

Motor Fuel Tax Payment Requirements

Motor fuel taxpayers that file electronic returns are required to pay the tax by electronic funds transfer.

Tobacco Tax Bonds

The bond required of tobacco wholesale dealers or retail dealers may include an irrevocable letter of credit.

Unauthorized Substance Tax

Effective retroactive to June 1, 2011, the unauthorized substance excise tax of $3.50 per gram of marijuana is also applicable to synthetic cannabinoids. Ch. 79 (S.B. 826), Laws 2012, effective June 26, 2012, unless otherwise noted

Multiple Taxes: Educators Expense Deduction Adopted; Article 3J Credit Carryovers Extended

Legislation enacts a state-only education expense deduction for North Carolina personal income tax purposes and allows an extended carryover period for the Article 3J credits against personal and corporate income, corporate franchise, and insurance gross premium taxes for qualified investments.

Sales tax, and insurance and utility provisions are discussed in related stories.

Educators Expense Deduction

Amendments allow for a state-only educator's expense deduction beginning with the 2012 tax year, to the extent that a deduction has not been claimed for educator expenses in determining federal adjusted gross income. [Note: The federal educators expense deduction is currently scheduled to expire beginning with the 2012 tax year.] For purposes of the North Carolina deduction, an eligible educator may deduct up to $250 ($500 if married filing jointly and both spouses are eligible educators) of expenses paid or incurred in connection with books; supplies, other than nonathletic supplies for courses in health or physical education; computer equipment, including software and services; and supplementary materials used in the classroom. An "eligible educator" has the same meaning as defined in IRC §62, as it existed on December 31, 2011.

Article 3J Credit Carryovers

The minimum threshold investment amount to qualify for the extended 20-year carryover period for the Article 3J credits is reduced from $150 million to $100 million for investments made in development tier one areas. The Article 3J credits are the credits for creating new jobs, investing in business property, and investing in real property. Currently, unused credit may only be carried over for five years (15 years for purposes of the credit for investing in real property), but the carryover period may be extended if the Secretary of Commerce makes a written determination that the taxpayer is expected to purchase or lease, and place in service in connection with an eligible business within a two-year period, at least $150 million worth of business and real property. The legislation leaves this provision in place, but allows the extended 20-year carryover period for investments of $100 million in a development tier one area during the 2012 tax year. As before, if the taxpayer does not make the required level of investment the carryover period is reduced back to five years. Ch. 74 (H.B. 1015), Laws 2012, effective as noted above


Ohio

Sales and Use Tax: Management Company Not Eligible for Political Subdivision Exemption

A management company engaged by the city of Cincinnati to manage its golf courses was found liable for Ohio use tax because it could not claim the exemption for sales made to a political subdivision. Though the taxpayer claimed an agency relationship with Cincinnati, the management contract expressly disclaimed agency in regards to the activities the taxpayer conducted pursuant to its terms. Also, the contract required that the taxpayer's purchase invoices be submitted to the city's accounting offices for review in order to receive reimbursement. These contract provisions did not support the taxpayer's claim that it could directly bind the city to the purchases. Furthermore, the legal incidence of the tax fell on the taxpayer, as Ohio law deems a facilities-management contractor to be the consumer of items purchased "for use in connection with the performance of such contract." Therefore, the taxpayer's purchases could not be framed as sales to the city. Cincinnati Golf Management, Inc. v. Testa, Ohio Supreme Court, No. 2012-Ohio-2846 June 27, 2012.

Property Tax: Library Funding Changes Enacted

Ohio has enacted changes relating to the levy of property tax to fund the library system. For tax years beginning January 1, 2013, a taxing authority of a subdivision may levy a tax for the support of a library association or private corporation only if the library association or private corporation has an "association library district" and if the territory of the subdivision includes some or all of the territory of that association library district. The taxing authority must submit the question of the tax levy only to the electors residing within the territory of the association library district. If approved, such a tax will be levied only upon taxable property located within the territory of the association library district. An "association library district" is a territory, the boundaries of which are defined by the state library board, in which a library association or private corporation maintains a free public library. Also beginning in tax year 2013, a property tax levy imposed by a subdivision at the request of a library system that has different boundaries than the subdivision must be submitted to the voters in the library system's territory and the tax applies only in the territory of the library system.

The legislation authorizes the state library board, upon application of one or more boards of library trustees or upon its own initiative, to define, amend, and adjust the boundaries of overlapping library districts to eliminate areas of overlap. In addition, the state library board may, upon application of any private corporation or library association maintaining a free public library prior to September 4, 1947, define, amend, and adjust the boundaries of a library district for the private corporation or library association for the sole purpose of preventing or eliminating areas of overlap with other library districts in relation to tax levies that are or may be levied in support of the private corporation or library association. S.B. 321, Laws 2012, effective June 26, 2012; Bill Analysis, Ohio Legislative Service Commission


Oregon

Income Tax: Taxpayers Qualified for Farmers Estimated Tax Exemption

Taxpayers who sold Christmas trees were qualified for the exemption for farmers from filing a statement of estimated Oregon personal income tax and were not required to pay interest assessed by the Department of Revenue (DOR) on underpayment of estimated tax. The taxpayers elected under IRC §631 to treat income from the sale of the Christmas trees as a capital gain. The DOR counted the sale of the Christmas trees twice, once as capital gains and once as farm income. When properly calculated, the gain from the sale of the Christmas trees was approximately 96% of the taxpayers' total income for the tax year in question. Under ORS §316.573(1)(a), an individual does not have to file a declaration of estimated tax if the individual's estimated gross income from farming is at least two-thirds of the total estimated gross income from all sources for the taxable year. Therefore, the taxpayers were not required to file a declaration of estimated tax and were not subject to the interest charged by the DOR for underpayment of estimated tax. Randall v. Department of Revenue, Oregon Tax Court, No. TC-MD 111026C, June 26, 2012.


Pennsylvania

Income Taxes: Wage/Earnings Tax Rates for 2012 Released

The Philadelphia Revenue Department has issued a release with the wage/earnings tax rates for the second half of 2012. Specifically, the tax rate for January 1, 2012, through December 31, 2012, remains unchanged at:

  • Residents of Philadelphia—3.928% (0.03928)
  • Nonresidents—3.4985% (0.034985).

What's New, Philadelphia Revenue Department, June 29, 2012.

Property Tax: Storm-Related Abatements Authorized

Pennsylvania political subdivisions that impose real property taxes may abate those taxes for the year 2011 on property that was damaged or destroyed by Hurricane Irene or Tropical Storm Lee (the storms). In addition, taxing authorities may, for a limited period, exempt from real property taxation the assessed valuation of reconstruction or repairs made to properties damaged or destroyed by those storms.

The amount of the abatement must be in direct proportion to the damage to the property as measured by the county assessment office using the same assessment valuation factors, criteria, and procedures in use prior to the disaster, and the county assessment office may reassess damaged properties retroactive to August 1, 2011, to reflect reductions in property values due to the storms. A damage assessment performed in conjunction with the county assessment office and the Federal Emergency Management Agency (FEMA) for purposes of determining federal disaster aid connected with the storms may be used to determine the abatements.

No abatement can exceed $30,000 for any single property, and no related abatement, credit, or refund can be allowed to anyone who did not own the property at the time of the storms. If real property taxes have already been paid on the property, a portion of the assessed value of the property lost due to damage may be refunded by the taxing authority or reflected by the taxing authority in the form of a credit for the succeeding tax year.

Reconstruction, Repair Exemption

The exemption for reconstruction or repairs is limited to the difference between the assessed valuation of the property prior to the damages and any increase in valuation of the property due to the actual cost of reconstruction or repairs to the original structure. The exemption applies to the eligible assessment over a three-year period at the rates of 100% for the first year, 50% for the second year, and 25% for the third year, after which the exemption terminates.

No property is eligible for the exemption unless reconstruction or repairs are begun within three years of the date of either storm. The exemption also terminates upon the sale, transfer, conveyance, or exchange of the property. Act No. 2012-71 (H.B. 1913), Laws 2012, effective June 27, 2012, and applicable as noted

Unclaimed Property: Names of Apparent Owners Posted Online

The Pennsylvania State Treasurer has announced the posting of the names of persons appearing to be owners of abandoned and unclaimed property reported and delivered to the Treasury Department. The Pennsylvania Bulletin Notice is available online at http://www.pabulletin.com/secure/data/vol42/42-26/1254.html. Notice, Treasury Department, June 30, 2012.

Miscellaneous Tax: Sunset Date Extended for Underground Storage Tank Programs

The Pennsylvania Underground Storage Tank Environmental Cleanup Program and the Underground Storage Tank Pollution Prevention Program will each cease to exist on June 30, 2017. Formerly, each of the programs was set to terminate as of June 30, 2012. Act No. 2012-74 (S.B. 1398), Laws 2012, effective June 27, 2012.

Multiple Taxes: Third-Party Preparer e-File Requirements Posted for 2013

The Pennsylvania Department of Revenue (DOR) has posted notices of electronic filing requirements for third-party preparers on or after January 1, 2013, for personal income tax withholding; liquid fuels and fuels tax; and sales, use, and hotel occupancy tax. For all calendar years following a calendar year in which a third-party preparer prepares 50 or more of those tax reports, the preparer is required to electronically file (e-file) according to DOR instructions. The DOR discusses who is a third-party preparer and the 50-report threshold.

Failure to file any of those reports correctly will subject the preparer to a fine of between $10 and $500, depending on the tax due. Waiver of those penalties also is discussed.

The notices are available on the Pennsylvania Bulletin website at http://www.pabulletin.com/secure/data/vol42/42-26/1229.html (withholding), http://www.pabulletin.com/secure/data/vol42/42-26/1230.html (liquid fuels and fuels tax), and http://www.pabulletin.com/secure/data/vol42/42-26/1231.html (sales, use, and hotel occupancy tax). Notices, Pennsylvania Department of Revenue, June 30, 2012.


Rhode Island

Income Tax: Cistern Installation Credit Enacted

Rhode Island personal income taxpayers may claim a credit for installing a cistern on their property to collect rainwater for use in their home or business. The amount of the credit is equal to 10% of the installation cost, up to $1,000. Only one credit may be claimed per individual or business over the life of the cistern unless it is replaced with a larger cistern and the taxpayer has not received the maximum credit. A cistern must hold a minimum of 50 gallons of diverted rainwater or snow melt and may be either above or below ground, but must be covered. Ch. 452 (H.B. 7070), Laws 2012, effective June 26, 2012.

Sales and Use Tax: Livestock Feed Exemption Enacted

Rhode Island has enacted a sales and use tax exemption applicable to feed for livestock and poultry used to produce for food for human consumption or fibers for human use. H.B. 7157/S.B. 2283, Laws 2012, effective June 22, 2012.

Property Tax: Amount of Homestead Exemption Protected From Attachment Increased

For Rhode Island property tax purposes, legislation is enacted that increases the amount of the homestead exemption protected from attachment from $300,000 to $500,000. The legislation provides that the exemption extends to an owner of a home or an individual who rightfully possesses the premises by lease, as a life tenant, or as a beneficiary of a revocable or irrevocable trust who occupies or intends to occupy the home as his or her principal residence. An exemption, freeze of tax rates and/or valuation granted to any individual created by a public law or municipal ordinance would not be affected by the transfer of an ownership interest in property if the transferor: (1) retains a life estate in the property; (2) transfers an ownership interest while leasing the property back, but only where the lessee was the owner of the property prior to the transfer to the lessor; or (3) transfers the property to a revocable or irrevocable living trust. The individual must reside in the property, and the individual or a trustee must be legally obligated to pay property tax on the property by contract, agreement, the terms of the trust instrument, or otherwise by law. These provisions are applicable to any such transfer, regardless of when the transfer is made. S.B. 2485 and H.B. 7662, Laws 2012, effective June 21, 2012.

Property Tax: Certain Federal Census Tracts Added to Enterprise Zone Designation

For Rhode Island property tax purposes, legislation is enacted that adds certain federal census tracts within the town of Middletown to the enterprise zone designation under the Distressed Areas Economic Revitalization Act. S.B. 2835 and H.B. 8161, Laws 2012, effective June 26, 2012.

Property Tax: New General Recording Fees Enacted

For Rhode Island property tax purposes, legislation is enacted that adds provisions to the general recording fees. The legislation stipulates that the fee for a writ of attachment or execution affecting title to real estate is $10, the fee for a writ of attachment or lien affecting title to mobile and manufactured homes is $2, the fee for a notice of intention under the mechanics' lien law is $8, and the fee for an account under the mechanics' lien law is $10. S.B. 2508 and H.B. 7472, Laws 2012, effective June 21, 2012.

Miscellaneous Tax: Exemption Authorized for Sales of Mobile and Manufactured Home Communities

Legislation is enacted providing that qualified sales of mobile and manufactured home communities to resident-owned organizations will be exempt from the Rhode Island real estate conveyance tax. Ch. 391 (H.B. 7726) and Ch. 364 (S.B. 2754), Laws 2012, effective June 21, 2012.


South Carolina

Income Tax: Pass-Through Trade and Business Income Rates Gradually Reduced

Effective June 28, 2012, South Carolina income tax rates for pass-through trade and business income are gradually reduced from 5% to 3% over a three-year period. For tax years 2008 through 2011, the rate was 5%; for 2012, the rate is 4.33%; for 2013, the rate is 3.67%; and for tax years after 2013, the rate is 3%. H.B. 5418, Laws 2012, effective as noted above

Sales and Use Tax: Limitation on Capital Projects Tax Amended

The South Carolina Legislature has overridden a veto by Gov. Nikki Haley in order to amend the limitation on the 1% capital projects local sales and use tax. Current law states that no portion of a county area may be subject to both the tax for capital projects and the local tax for transportation facilities. However, this limitation does not apply to a county where, as of July 1, 2012, a local sales and use tax was imposed to offset the costs of school construction, for other school purposes, or other government expenses. S.B. 1167, Laws 2012, effective June 20, 2012.

Property Tax: Ordinance Can Add Cleanup Costs Onto Tax Bill

The South Carolina Attorney General has issued an opinion stating that there is direct statutory authority that would allow a town to adopt an ordinance providing that costs to clean up deteriorating structures and abandoned overgrown lots can be added to an annual property tax bill without a referendum. Further, if the costs were not paid, the property could be offered at a tax sale. Opinion, South Carolina Attorney General, June 22, 2012.

Property Tax: Required Tax Sale Notice Procedures Not Followed

The sale of real property for delinquent South Carolina property taxes was set aside because there was no evidence in the record that the required procedures regarding the first notice of delinquent property taxes were followed. The evidence showed that the county tax collector's office did not handle mailing of the notice, but, instead, relied on an outside contractor. The contractor did not testify at a hearing in the matter, and the county tax collector could not produce a copy of the first notice that she claimed was mailed. Ulfers v. Capers, South Carolina Court of Appeals (unpublished), No. 2012-UP-389, June 27, 2012.

Property Tax: Residence That Was Leased Did Not Qualify for Lower Ratio

The South Carolina property tax assessment at a 6% ratio, instead of a 4% ratio, for a residence leased for 91 days during the summer for income purposes was upheld. The property was leased for more than 14 calendar days during the tax year, and the owners' arguments that the relevant statutes should be interpreted to allow for application of the 4% ratio were rejected. Ford v. Beaufort County Assessor, South Carolina Court of Appeals, No. 4992, June 27, 2012.


South Dakota

Sales and Use Tax: Municipal Tax Information Bulletin Issued

The South Dakota Department of Revenue has issued a municipal tax information bulletin that provides an introduction to municipal sales, use, and gross receipts taxes. The bulletin also discusses sales, use, and excise taxes and provides special jurisdiction and municipal tax rates effective July 1, 2012. Municipal Tax Information Bulletin, South Dakota Department of Revenue, June 2012.


Texas

Sales and Use Tax: Sunscreen Products, Tax Holiday, and Water Conservation Items Discussed

A Texas Comptroller newsletter discusses the sales tax exemption for sunscreen products, the back-to-school sales tax holiday to be held in August, and the exemption for items used to enhance the availability of water.

Sunscreen

As of June 18, 2012, over-the-counter (OTC) sunscreen products are once again exempt from Texas sales and use tax because a new Food and Drug Administration (FDA) rule requires sunscreen products to bear the drug facts panel.

Over-the-counter drugs and medicines, including sunscreen, were originally exempted from sales tax on April 1, 2000. However, effective September 1, 2007, an amendment provided that an OTC item was exempt from sales tax only if the item was required by the FDA to be labeled with a drug facts panel. After this amendment, OTC sunscreen products became taxable. Because a newly published FDA rule now requires sunscreen drug products to bear the drug facts panel, those products became exempt again, effective June 18, 2012.

Sales Tax Holiday on August 17, 18, and 19

The annual Texas back-to-school sales tax holiday will begin at 12:01 a.m. on Friday, August 17, 2012, and end at midnight on Sunday, August 19, 2012. During this three-day period, Texas shoppers will get a break from state and local sales taxes on purchases of school supplies, clothing, and most backpacks priced under $100.

Items and Services Used to Enhance Water Availability

A Texas sales and use tax exemption is allowed for equipment, supplies, and/or services used solely in the following types of water conservation or reuse activities: (1) rainwater harvesting; (2) water recycling and reuse; (3) reduction or elimination of water use; (4) desalination of surface water or groundwater; (5) brush control designed to increase the availability of water; (6) precipitation enhancement; (7) water or wastewater system construction or operation; or (8) fracturing at an oil or gas well.

Examples of exempt items and services are provided. "Solely" means that the equipment, supplies, or services are used exclusively for the reason stated.

The entire newsletter is available on the comptroller's website at http://www.window.state.tx.us/taxinfo/taxpnw/tpn2012/tpn1206.html. Tax Policy News, Texas Comptroller of Public Accounts, June 2012.

Property Tax: Tax Rate Increase Authorizing Rollback Election Clarified

In the opinion of the Texas Attorney General, voters are authorized to petition for a rollback election only when the sum of all of a county's individually adopted property tax rates exceeds the combined rollback tax rate. The right to petition for a rollback election is not automatically triggered if a county adopts a rate for a particular tax that is above the rollback rate for that particular tax.

Counties may generally levy three individual property tax rates for funds dedicated to specific purposes. Under the Tax Code, if a county adopts a tax rate that exceeds the rollback tax rate, then voters may petition for a rollback election to reduce the current tax rate to the rollback tax rate. The term "rollback tax rate for a county" is defined as "the sum of the rollback tax rates calculated for each type of tax the county levies." Therefore, the relevant inquiry is whether the sum total of the adopted tax rates exceeds the sum total of the rollback tax rates. Opinion No. GA-0954, Texas Attorney General, June 26, 2012.

Insurance Tax: Insurance Premiums for Certain Groups of Public Employees Exempt

A Texas Comptroller newsletter notes that life and accident and health premiums received from certain groups of public employees are exempt from any Texas state tax, regulatory fee, or surcharge, including any insurance premium or maintenance tax or fee.

Broadly speaking, the exempt groups of public employees are: (1) state employees and retirees; (2) state college and university employees and retirees; (3) active public school employees; (4) retired public school employees; (5) employees of municipal, county, or hospital districts where the group covered by the policy consists of a single nonprofit trust established to provide coverage; and (6) employees of the federal government. Additional information on each of the exempt groups is provided.

The entire newsletter is available on the comptroller's website at http://www.window.state.tx.us/taxinfo/taxpnw/tpn2012/tpn1206.html. Tax Policy News, Texas Comptroller of Public Accounts, June 2012.


Vermont

Sales and Use Tax: Temporary Exemption of Remotely Accessed Prewritten Software Discussed

A Vermont Department of Taxes information sheet discusses the temporary sales and use tax exemption for remotely accessed prewritten software, also known as cloud computing or software as a service (SaaS). As previously reported, the temporary exemption was enacted by Act 143 (H.B. 782), Laws 2012, and it applies to charges for remotely accessed prewritten software made after December 31, 2006, and before July 1, 2013.

Refunds are available for taxes paid on charges for the right to access and use prewritten software run on underlying infrastructure that is not managed or controlled by the consumer or a related company. Software purchased by download does not qualify for a refund. Sales and use taxes imposed on the purchase of specified digital products such as digital audio visual works, digital audio works, digital books, and ringtones are not affected by the temporary exemption.

Refunds must be requested on Form SMWA-1 within three years of the date the tax was paid and must be documented with proof that tax was paid on remotely accessed prewritten software. The proof can be an invoice or license to use the product that includes the product description, vendor name, date of purchase, amount of purchase, and tax paid. Information Sheet—Refunds on Tax Paid on Prewritten Software Accessed Remotely Pursuant to Act 143 of 2012, Vermont Department of Taxes, June 29, 2012.

Multiple Taxes: Rule Regarding Appeals Adopted; Rules on Department of Taxes Organization and More Amended

The Vermont Department of Taxes has adopted a new rule regarding appeals to the Commissioner of Taxes of any action by the department. The new rule discusses the right to appeal, the pre-hearing meeting, the right to a hearing, the commissioner's hearing, continuances, post-hearing filings, and the transcript.

The department has also repealed a rule regarding special procedures for certain informal hearings and amended rules regarding the department's organization, rule-making, declaratory rulings, licenses and certificates, and other matters administered by the department. Among other changes, an amendment provides that a Director of Property Valuation and Review within the department will assist listing officials, conduct the equalization study of municipalities' grand lists, set education tax rates, and assist the commissioner in the administration of various property-related programs and taxes. In addition, the department must initiate rule-making procedures to adopt as a rule an existing practice or procedure when it is requested to do so by 25 or more persons or by the Legislative Committee on Administrative Rules. Organization and Rules of Procedure, Vermont Department of Taxes, effective July 4, 2012.


Virginia

Sales and Use Tax: Exemption for Public Transportation Companies Expanded to Include Additional Companies

The list of public transportation companies that qualify for the exemption from Virginia retail sales and use tax on their purchases is expanded to include all transit companies that are owned, operated, or controlled by any county, city, or town that provides public transportation services. Tangible personal property sold or leased to any county, city, or town and subsequently transferred to such companies is also exempt from use tax. Under current law, only tangible personal property sold or leased to the Alexandria Transit Company, Greater Lynchburg Transit Company, GRTC Transit System, and Greater Roanoke Transit Company is exempt from the retail sales and use tax. Similarly, only tangible personal property sold or leased to any county, city, or town that is transferred to any of these companies is exempt. The provisions in this bill are identical to those in Ch. 95 (H.B. 959), Laws 2012. Ch. 276 (S.B. 40), Laws 2012, effective July 1, 2012.

Sales and Use Tax: Exemption for Certain Educational Materials Withdrawn >From Inventory Extended

A bill has been enacted that extends the sunset date for the Virginia retail sales and use tax exemption for textbooks and other educational materials withdrawn from inventory at book-publishing distribution facilities from July 1, 2012, to July 1, 2017. The exemption applies when such materials are withdrawn for free distribution to professors and other individuals with an educational focus. Ch. 275 (S.B. 37), Laws 2012, effective July 1, 2012, applicable as noted

Motor Fuel Tax: Bulk Users and Retailers of Undyed Diesel Fuel Not Required to Be Licensed

Legislation has been enacted relating to the Virginia motor fuels tax that removes the requirement that bulk users and retailers of undyed diesel fuel be licensed and eliminates references to transportation of motor fuel by barge, watercraft, railroad tank car, or transport truck. The legislation also includes references to persons who transport motor fuel loaded at a terminal rack or bulk plant rack. H.B. 536, Laws 2012, effective July 1, 2012.

Tobacco Tax: Penalties Imposed With Respect to Tax-Paid Contraband Cigarettes

For purposes of the Virginia cigarette tax, any person other than an authorized holder who possesses more than 5,000 (25 cartons) tax-paid cigarettes with an intent to distribute the contraband cigarettes is guilty of a Class 2 misdemeanor for a first offense and a Class 1 misdemeanor for a second or subsequent offense. In addition, the person is also liable for a civil penalty of $2.50 per pack, up to $5,000 for a first offense; $5 per pack, up to $10,000 for a second offense committed within a 36-month period; and $10 per pack, up to $50,000 for a third or subsequent offense committed within a 36-month period. The Department of Taxation will collect the civil penalties as other taxes are collected.

"Tax-paid cigarettes" are cigarettes that bear valid Virginia stamps to evidence payment of excise taxes or were purchased outside Virginia and either bear a valid tax stamp for the state in which the cigarettes were purchased or, when no stamp is required by the state, proper evidence can be provided to establish that the applicable excise taxes have been paid. H.B. 479, Laws 2012, effective July 1, 2012.

Miscellaneous Tax: County Could Use Other Reliable Information to Determine Correct Market Value

A taxpayer that appealed the assessment of a local Virginia recordation tax on the assessed value of property would be entitled to a refund by the county when the county determined the correct market value because placing a value on real estate was entirely a factual determination that was best made by the county clerk who was thoroughly familiar with the property itself and local market conditions. In this case, the taxpayers contended that the consideration paid for the transfer of the property interest represented the best indication of the fair market value for purposes of the tax. The assessed value that was used by the county as the basis for imposing the tax was accorded a very strong presumption of accuracy in determining fair market value.

The tax commissioner ruled, however, that a county clerk was not required to use the assessed value to the exclusion of other reliable information as to the current fair market value. If it could be shown by clear and cogent evidence why the assessed value did not reflect fair market value as of the date of the transaction, the county clerk had the authority to rely on this evidence to determine the proper amount of the recordation tax. Ruling of Commissioner, P.D. 12-61, Virginia Department of Taxation, April 27, 2012.


Washington

Business and Occupation Tax: Entire Gross Receipts From Amusement Devices Taxable

A corporate owner of coin-operated amusement devices owed Washington business and occupation (B&O) tax on the gross income derived from the amusement devices without a deduction for the portions paid to the owners of the establishments where the devices were placed. The taxpayer asserted that its written agreements with the establishment owners were joint venture agreements, and these relieved it of the requirement to pay B&O tax on 100% of the gross revenue. However, WAC 458-20-187 makes clear that a person operating amusement devices is taxable on the gross receipts from those devices. Further, the taxpayer's agreements did not meet requirements pertaining to valid joint ventures. Tax Determination No. 11-0170, Washington Department of Revenue, June 28, 2012.

Sales and Use, Business and Occupation Taxes: Repossessed Vehicles Excluded From Bad Debt Deduction

A used car dealer could not claim a bad debt deduction against the Washington sales tax and the retailing business and occupation (B&O) tax on vehicles it subsequently repossessed. The taxpayer claimed both a retail sales tax credit and a B&O tax deduction from the outstanding balance of loans in default with no reduction for the value of vehicles that were later repossessed. Washington statute, however, specifically excludes repossessed property from the definition of "bad debts." Therefore, the reduction of the taxpayer's tax credit and bad debt deduction by the value of the repossessed property was appropriate. Tax Determination No. 10-0201, Washington Department of Revenue, June 28, 2012.

Sales and Use, Business and Occupation Taxes: Meetings With International Retailer Did Not Establish Nexus

An out-of-state seller of food products was not liable for sales tax and retailing business and occupation (B&O) tax because it did not have substantial nexus with Washington. The taxpayer's representative made two visits to Washington within a five-year period, but these visits were not associated with its ability to establish and maintain a market for its product within the state. The representative met with a retailer in order to make wholesale sales for subsequent sale at the retailer's overseas locations. The food products sold by the taxpayer were transported from the taxpayer's out-of-state headquarters to the retailer's location outside of Washington for shipment overseas. The taxpayer's activities did not create substantial nexus as the products sold to the retailer never entered the Washington marketplace and the taxpayer did not sell any products in the retailer's Washington stores. Additionally, the taxpayer did not engage in any other marketing activities in Washington. Tax Determination No. 11-0225, Washington Department of Revenue, June 28, 2012.

Tobacco Tax: State Supreme Court Grants Temporary Stay; Tax on Roll-Your-Own Cigarettes Takes Effect

The Washington Department of Revenue has announced that retailers operating machines that allow their customers to roll their own cigarettes must begin affixing cigarette tax stamps to those products beginning July 1. On June 29, the Washington Supreme Court issued a temporary stay of a pending lower court preliminary injunction that would have prevented the new roll-your-own cigarette tax law from taking effect. (Ch. 4 (H.B. 2565), Laws 2012, 1st Special Session) The Supreme Court will consider a more permanent stay on July 10. The state contends that H.B. 2565 simply provides a more effective enforcement mechanism to prevent evasion of taxes that are already due on all cigarettes. The plaintiffs contend, however, that the legislation creates a new tax subject to a two-thirds vote of the Legislature under Initiative 1053. News Release, Washington Department of Revenue, June 29, 2012.

Miscellaneous Tax: Transfer Pursuant to Court-Ordered Sale Not Subject to REET

The transfer of property resulting from a judicial foreclosure and court-ordered sale, where the court appointed a receiver to facilitate the sale, did not constitute a sale of real property subject to Washington real estate excise tax (REET). The appointment of the receiver did not change the nature of a judicial foreclosure, and the transfer or conveyance of real property in such a circumstance was still effectuated by an order of sale by the court. Transfers or conveyances made pursuant to an order of sale by a court in a lien foreclosure proceeding do not fit within the statutory definition of a "sale" of real property, and, therefore, the transfer at issue was not subject to REET. Tax Determination No. 11-0227, Washington Department of Revenue, June 28, 2012.

Multiple Taxes: Taxability of Solid Waste Collection, Disposal and Recycling Businesses Discussed

The Washington Department of Revenue has updated its publication regarding the application of solid waste collection tax, sales and use tax, and business and occupation (B&O) tax to solid waste collection and disposal and recycling businesses. The 3.6% solid waste collection tax is a tax on the ultimate consumer/user of solid waste collection services—a resident or commercial business disposing of solid waste/refuse. The tax applies to the amount charged for the collection and disposal service. Service and other activities B&O tax is due on gross income from solid waste collection service activities.

Charges for collecting recycled/salvaged goods are not subject to solid waste collection tax. Service and other activities B&O tax is due on income from pickup/collection services. Manufacturing B&O tax is due on processing waste into usable products. Wholesaling B&O tax is due on income from sales of recycled/salvaged materials or products manufactured from such materials when the buyer provides a reseller permit to the seller. Retailing B&O tax is due on income from sales to consumers of recycled/salvaged materials or new products. Use tax is due on articles that are manufactured by the recycling/salvage company for its own use, based on the value of the product as measured by the retail selling price for items of similar quality, quantity, and character. Solid Waste Collection/Disposal and Recycling Businesses, Washington Department of Revenue, June 2012.


West Virginia

Multiple Taxes: Grocery Food Tax Reduced July 1

Gov. Earl Ray Tomblin reminds West Virginians that on Sunday, July 1, 2012, the consumers' sales and service tax rate applicable to food and food ingredients was reduced from 2% to 1%. Further, the tax on food and food ingredients will be completely phased out on July 1, 2013, contingent on the state's Revenue Shortfall Reserve Fund containing a minimum balance. The rate reduction and the potential phaseout of the tax on grocery food are the result of 2011 legislation. Press Release, West Virginia Gov. Earl Ray Tomblin, June 27, 2012.


Wisconsin

Sales and Use Tax: Publication for Counties and Municipalities Updated

A Wisconsin Department of Revenue publication that explains how sales and use taxes affect Wisconsin counties and municipalities is updated to reflect the department's position regarding laws enacted by the Wisconsin Legislature as of June 1, 2012. In addition, information regarding the tax treatment of gift baskets that contain both taxable and nontaxable products is added to the publication. The publication discusses the nature of the sales and use tax; seller permits; return filing and payment of tax; sales and purchases by governmental units; food, food ingredients, and beverages; admissions and facility rentals; the occasional sale exemption; construction for a governmental unit; record-keeping; local taxes; and other matters. Publication No. 209, Wisconsin Department of Revenue, June 2012.

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